Regulatory: Personal Political Activity by Corporate Personnel

Although the Members of the 112th Congress - victors in the 2010 elections - were sworn in just last week, the next campaign season is already underway. Dozens of fundraisers were held in the few days after Congress reconvened, with scores more scheduled for the weeks ahead. Nationwide, candidates and potential candidates are considering their chances and laying the groundwork for their next local, state and federal races.

At the highest level, President Barack Obama is in the middle of a White House staff shakeup, designed in part to put key advisors in place for his 2012 reelection effort. And among Republicans, twenty or more presidential hopefuls are reportedly considering the race and planning visits to Iowa and New Hampshire. The first hopefuls are expected to formally announce their candidacies by spring.

With closely-divided margins between Democrats and Republicans in Congress and in many states, and important policy issues affecting business on the table, corporations and their employees will again have many reasons to be active in the political arena in 2011 and 2012.

Given the myriad of laws and rules regulating political activity, the inevitable interest in the coming campaigns will test in-house counsel. And now, before the campaign season heats up, is the time to ensure that corporate policies and codes of conduct are in place to protect both employees and their businesses.

An earlier column in this series outlined the risks associated with corporate political expenditures, notwithstanding the Supreme Court's decision in Citizens United to grant corporations more freedom in this area.

Separate and apart from the political activities that a company may consider, on its own or through a political action committee, are the personal political activities of corporate personnel. This includes executives and employees who make their own contributions, raise funds for candidates, host political events and volunteer for campaigns.

The First Amendment protects, and all businesses should respect, the rights of employees to support the political candidates and issues of their own choosing. Corporate personnel will naturally be drawn to political activities, particularly those who work in industries in which government funding or regulation may have a significant impact on a company's growth and profitability, and in turn on an individual employee's career.

The challenge for corporate counsel is to ensure that employees may exercise their right to personal political activity without any legal liability or other negative implications for the company.

Of course, as an initial matter, companies may not reimburse an employee for any political contribution, whether directly or through indirect means, such as a bonus. Personal political activities should not factor in any employee's evaluation or compensation.

Moreover, employees should be directed to participate in political activities on their own time rather than during normal working hours. At the federal level and in many state and local jurisdictions, a company may not compensate an employee for time spent on personal political activities, for the salary could amount to an illegal or excessive corporate contribution. Accordingly, care must be taken to ensure that a company's own policies with regard to expected work hours, allowable leave time, vacation, etc., are not applied differently to those employees who use their own time to engage in political activity.

In some cases, the law may allow employees to make limited use of company resources, as at the federal level where corporate employees may "make occasional, isolated, or incidental use" of corporate facilities for individual volunteer election activity. But companies must guard against any activity that increases the overhead or operating costs of the corporation, which could result in a corporate contribution.

In addition, companies must be cautious with respect to corporate "facilitation," which refers to the prohibited use of corporate resources or facilities to engage in fundraising activities in connection with a federal election. Regulations define the term to include the cost of postage, delivery services, stationary, photocopying and similar administrative expenses when used for personal contributions as well as the use of corporate employees in any fundraising activities for a federal candidate or committee.

Many corporate counsel took notice of the concept of facilitation when Freddie Mac agreed to pay a $3.8 million civil penalty to the Federal Election Commission to end a facilitation investigation. But the crime need not involve an elaborate scheme of the sort alleged in that case. If an employee simply sends his or her personal check to a campaign using a corporate overnight delivery account, facilitation has occurred.

Corporations may also wish to require that employees who engage in personal political activities be clear at all times that such participation is as an individual and not as a representative of the company. Employees should not use the corporate name in any way to ensure that there can be no interpretation of sponsorship or endorsement by the company.

Finally, note that companies may need, in some instances, to regulate more closely personal political contributions. An earlier column described the growth of so-called "pay-to-play" laws.

Under these pay-to-play laws, which apply to companies that hold government contracts, a personal contribution by certain corporate employees to particular candidates or political committees could jeopardize the company's government business. Although at odds with the general preference to keep personal and professional activities separate, these laws demand that companies adopt policies and procedures to avoid covered personal contributions.

And they further complicate an already complex area of law that will be the subject of even greater scrutiny as the 2012 elections get underway.

[This is the fifth in a series of articles on the intersection of corporate compliance, lobbying, and political activities.]